Budget spending could lead to more rate hikes: Rosenberg

While the feds touted the spending in its budget as prudent, prominent Bay Street economist David Rosenberg said the extra fiscal stimulus could lead the Bank of Canada to hike its benchmark rate higher than originally thought.

While the federal government touted the spending in its budget as prudent, prominent Bay Street economist David Rosenberg said the extra fiscal stimulus could lead the Bank of Canada to hike its benchmark rate higher than originally thought.

“We are basically a fully-employed economy so you don't really need to add demand fuel to the fire when the economy has no output gap and the central bank is behind the eight ball. So this is going to fuel more interest rate hikes in the country against the backdrop of fiscal stimulus that is not well timed, in my opinion,” said Rosenberg, who is president, chief economist and strategist at Rosenberg Research, in an interview Friday.

The federal budget unveiled $60 billion in new spending, though that was lower than expected when compared to the December fiscal update and Bay Street predictions.

In an interview with BNN Bloomberg, Deputy Prime Minister and Finance Minister Chrystia Freeland said she recognized that the government needed to “shift gears” and signal to the provinces and individuals that the “time of extraordinary COVID spending was over.”

However, Rosenberg characterized much of the new spending as “unnecessary,” considering the state of the economy.

“What bothers me is that the government just ... made the Bank of Canada's anti-inflation strategy that much more complicated because when you look at the budget, it adds about one-third of a percentage point to this year's aggregate demand growth that it doesn't really need from a government sector. And actually, when you think about it, it’s exactly the wrong time of the cycle,” he said.